An Emperor caught diseased and nude in the 21st century …
The film Enron: The Smartest Guys in the Room is directed by Alex Gibney (The Trials of Henry Kissinger) and based on the book by Fortune magazine journalists Bethany McKean and Peter Elkin: The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron.
The one positive feeling you take from this movie is knowing that Enron was outed for corruption. This documentary is the story of Enron’s downfall. Most readers would already know the Enron saga - it must be mandatory material for anyone interested in economics and corporate politics. The story is not yet over: the trials of Enron's founder Ken Lay and its one time CEO Jeff Skilling are set down for January 2006. Corporate officer Cliff Baxter committed suicide when news of Enron’s downfall hit the media, and CFO Andrew Fastow has already been convicted and sentenced for criminal activity.
Film-maker Alex Gibney takes us through the history of Enron’s internal corruption and its outward spread. It is a revelation of massive fraud, and the deceit that would eventually become the lifeblood of Enron. Enron went from being the seventh largest corporation in the United States, with assets estimated at just under US$70 billion, to being worth next to nothing by the end of 2001. In its wake tens of thousands of lives were ruined.
One of the many sad things shown in this documentary is how so many really bright people not only failed to realise their potential, but worse, regressed into ignorant liars and cheats. This was the road to rewards "the Enron way". What could have been a great and innovative enterprise sadly turned into a black box full of manipulated numbers.
As far back as 1987, founder Ken Lay was encouraging malpractice. After discovering the company’s most profitable oil trader at that time, Louis Borget, had stolen US$3 million from Enron, Mr Lay overlooked the criminal activity, because he believed the massive profits made far out-weighed the theft. He actually upped Borget’s trading budget. The precedent to reward criminal activity was set. Succeeding Borget (whose greed actually did come back to bite him with Lay pleading ignorance of Borget's activities at the trial), Jeff Skilling was brought into Enron as CEO.
Skilling was a very bright spark, and quite probably a man destined for great things. He created the business of trading oil and natural gas at a time when US government deregulations were kicking in. You can't help but wonder what the outcome for Enron may have been if Skilling had not lost his original vision - if he had not been sucked into what appeared the easier option of diddling figures to create wealth and prestige, and instead attempted to make real progress by implementing his innovative (real) ideas. Unfortunately Skilling’s creative business instincts, fostered by Lay’s seeming disregard for anything but the appearance of accruing dollars, paved the way for Skilling’s implementation of a valuation system christened “hypothetical future value”.
Hypothetical future value, the basis of mark to market (mtm) accounting, the documentary’s voice-over explains, gave Enron total freedom in grossly misleading their stock-holders. The company could effectively make any assumption it chose about projected earnings. As the well-established accounting firm Arthur Andersen sanctioned this practice, no one seemed to inquire too deeply. We are told Arthur Andersen reportedly received $1 million a week for their external auditing. It is made very clear that many Wall Street institution, legal firms, auditors and banks were content to watch their Enron Shares grow. They all possessed interests. You wonder if some individuals from these institutions were bribed or threatened into silence.
We learn the fate of a Merrill Lynch stock analyst who publicly expressed doubts over Enron’s remarkable figures. Ken Lay did a very advantageous “deal” with Merrill Lynch around that time. It included the suggestion that the questioning gentlemen be dismissed. He was. Again, it is obvious that many who might have asked questions were instead satisfied with watching the price of their Enron shares rise.
Aggressive young Turks on Enron’s payroll, the brightest of the brightest, were tacitly given the go-ahead to make money dishonestly. When we hear sound bites of the young Enron traders' conversations as they exploit the state of California, they sound like the nastiest, dumbest kids on the block. Their profit-making manoeuvres for Enron were nothing more elevated than securing a monopoly of sorts, manipulating a crisis, then selling back a commodity at outrageously inflated prices to a desperate and needy community. What happened to those rocket scientist minds? (For those as ignorant as I was about the causes of California’s energy crisis, Enron’s gross misuse of the deregulation of energy commodities was a major factor).
Enron: The Smartest Guys in the Room also elicits twinges of uncomfortable self-recognition. You think of every time you’ve been tempted to dip in, kick back, advantageously neglect, overlook … or anything at all that might be a bit sleazy in the business sense. You see how getting away with one sleight of hand encourages more outrageous and more frequent acts, how those actions can influence everything and everyone they touch, and how it all can snow ball in a very sinister way.
In short, what an easy and in every sense damaging cop-out greed can be.
Enron: an Emperor caught diseased and nude in the 21st century … As I said, the only optimistic thing about this documentary is that it was made.
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